The South Korean official statistics office said the June consumer price index climbed 5.5% from June 2007, accelerating from May's 4.9% figure. The figure was a touch above the estimates of economists surveyed by Bloomberg and Reuters.
Prices in June jumped 0.6% from May. The central bank had earlier forecast that inflation this calendar year would quicken to a decade high as fuel and food costs surge.
Like every other country, oil prices have doubled in the past year in South Korea. With central banks in Indonesia, the Philippines, Taiwan and India raising rates, there's speculation the Bank of Korea will follow suit at its next meeting on July 10.
It left rates steady at 5% last month, but with the CPI now above that mark, there's increased pressure to boost them as the won, the South Korean currency, continues to weaken. It's off around 12% so far this year.
Core inflation, which strips out oil and food costs, rose 0.5% from May and was up a high 4.3% from May of last year. That rise was the biggest since late 1998.
While headline inflation is up in Japan, but cost pressures are still easing on a core basis, the surging in cost pressures in South Korea, will add to pressure on the country's embattled new government which is in trouble with voters for its perceived arrogance and a decision to allow the resumption of beef imports from the US.
They were stopped back in 2003 because of an outbreak of mad cow disease in some cattle in the US. There have been no reports for five years, but Korean consumers remain uncertain of its safety and there have been repeated demonstrations against the government decision.
Now surging inflation will add to the pressures on the government and business. On top of oil there's the surging cost of raw materials like iron ore, coking and steaming coal.
They are already feeding through into higher electricity costs and rising costs for the export car and ship building industries with Pasco, the country's biggest producer, boosting prices by between 50-60% so far this year, including a 30% increase last month.
The Bank of Korea's forecast that inflation will accelerate to the fastest pace in a decade this year, thanks to the rising level of energy and food prices, came true within hours.
And that means its prediction that the rising cost pressures will in turn restrain consumer spending and business investment, can't be good news for the economy over the next year.
The central bank says Korean consumer prices are estimated to rise by 4.8% in 2008, higher than its December forecast of 3.3%, according to its half yearly economic outlook statement, released yesterday.
Economic growth will be 4.6%, slightly down from the December forecast of 4.7% and under the 5% actually reported in 2007. The Bank of Korea has been supporting the won in currency markets and last month left its key interest rate steady at 5%, a seven year high.
The central bank warned that inflation will likely continue to show strong growth for a significant period of time above the target range (2.5% to 3.5%) and that is expected to see the economy "slow". The bank says private consumption will rise 3%, down from 4.5% growth last year.
The bank said the country's current account deficit, the broadest measure of international trade, will be $US9 billion in 2008, three times the December forecast of $US3 billion. For that, blame the surging cost of oil.
